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Governments need to improve their awareness of the digital transformation that is upon us;
and prepare for some of the key challenges;
this is the key focus of work that I direct at the OECD.
With this perspective, I applaud the initiative of the Italians to place this high-up on the G7 Agenda and the OECD is very pleased to have assisted the Italian G7 Presidency with its people-centered focus.
As many have said, this transformation is breathtaking:
-- we all carry circa 1992 super computers in our pockets;
-- 4% of the globe in 1998 to 40% in only 20 years; closer to 90% for the G7;
-- the digital economy & society is here;
-- And with it, automation that is likely to accelerate: whether the estimated displacement is 42% of jobs (Oxford) or 9% (OECD), the challenge is still enormous since most of those affected are already in the workplace;
-- and less than 40% of workers in the OECD perform at Levels 2 or 3 (out of 5) in Problem Solving in Technology-Rich Environments;
a number that drops to 15% for 55-64 year olds
-- What’s more: the change is combinatorial and accumulative: as more people and things are digitised and connected, the data flows open up a range of new services, business models and fuels new technologies like machine learning and AI – No longer science fiction, but increasingly sitting on our kitchen tables.
The digital transformation has some properties -- this is NOT business as usual.
We have work underway that looks at 8 of these properties,
- one of these is what we call -- Scale without mass
– or the ability to scale up to billions of customers across the world with relatively low marginal cost….
…leading us to wonder what is a “small” business in 2017.
This is in sharp contrast to the architype industry of the 1980s-90s – the auto sector –
Just to use the “Big 3” from the US as an example – these firms required significant “scale” (employees, plant) scattered around the globe to serve about 10 million of customers
By doing so, they had a footprint in many countries around the world, subject to your sovereign laws and policies.
The top-3 tech firms on the other hand have roughly the same revenue (old data ) but a much larger market cap (27x) and almost an order-of-magnitude fewer jobs…
…and they have products that are used around the world, but this reach does not result in much of an international physical presence
…this has implications not only for tax policy which is in the news,
but scale without mass enables e-entrepreneurs like those who sell on eBay who are “born global” which vastly expands markets for SMEs and
may challenge Trade Policy and what is thought of as de minimus cross-border activity.
This “scale without mass” will lead to new growth dynamics where those firms that “get it” may vastly outperform the rest.
Our research suggests that in fact the lacklustre average productivity of the OECD conceals two offsetting trends:
the high productivity of the frontier firms
is cancelled by the laggards,
and this gap has grown over time especially in the ICT-services sector (left hand side);
Let me pause and draw 3 key implications for policy making:
I would encourage a wholesale review of policies to ensure that they are fit for purpose in this digital era? Asking, is there another, new way to achieve the policy objective through different, perhaps digitally powered, means?
Need for a whole of economy / society and hence government view since this is broad based and all sectors will be digital soon;
We need to be proactive instead of reactive so to seize the benefits and minimise the challenges..
The NPR is characterised by a confluence of technologies from robotics to big data to new materials
….the common element across these technologies is digitalisation which allows these technologies to be combined and it is this that is revolutionary.
For instance, the combination of: -- embedded sensors (IoT), -- connected via cloud computing and -- and throwing off data that allows “big data” analytics -- which enables autonomous machines and intelligent systems.
This forms an eco-system with feed-back loops which will lead to further innovations.
All these technologies are flowing into our manufacturing and services sectors which will be transformed by the data flows and their analysis.
This will cause a shift in the topography of global value chains, as it has for this Philips shaver that was once made in China and now in Drachten, Netherlands,
While on Dutch soil, it has very few workers thanks to almost complete automation.
While it will not happen overnight, I think it will be prudent to envision that factories may go the way of the farm: highly automated with relatively few employees;
But just as the “footprint” of the food sector is large, so will goods thanks to their transformation by data flows into services where jobs will be created,
Data is transforming the nature of capital equipment across industries like aerospace, farming and all sectors that use computing
And hence is converting investment from a capital good to a service and a yearly current expenditure.
Implications for public incentives designed to encourage investment as well as gvt statistics on investment and productivity.
And the arrival low cost production technologies like advanced robotics and 3D printing (right) may
mean that fewer tangible goods may be exchanged but more intellectual property – like designs (left).
This will alter the composition of trade and with it heighten the importance of IPR protection and enforcement
And with this transformation, the Internet becomes the new sea lane for trade
This reinforces the need for an Open Internet just like open seas
and for extreme care to be exercised when placing rules on the movement of data.
Data is variegated and not only characterises intermediate and final products;
it facilitates exchanges and it is raw material for innovation.
The origin of the Internet is as an open system which is a key factor for its success,
but this makes it susceptible to security failures and breaches
SMEs who may lack the resources – both in terms of finances but especially talent – are especially vulnerable;
and as this figure shows – they are increasingly the target.
Without trust, the digital economy will falter.
A list of some of the priorities for navigating the transition;
For the G7, it represents a unique group of advanced countries all of whom have been leaders in this area;
and all of whom appreciate that inherent in the digital era is the hyper-connectivity that requires an international response
The G7 provides a rich base of experience, trial and error and experimentation on getting policies right in this challenging area.
The OECD stands ready to curate these experiences and support the dialogue.
Making the next production revolution inclusive open and secure
MAKING THE NEXT PRODUCTION
REVOLUTION INCLUSIVE, OPEN AND
G7 ICT and Industry Minister’s Meeting
Andrew Wyckoff, Director
Directorate for Science, Technology and Innovation,
Torino, September 25th, 2017
The digital transformation of economies
and societies is under way….
NPR and digital technologies
have become pervasive
Automation is becoming
emerges as a new
…and has unique characteristics that
challenge traditional policy making…
Whatsapp: 300 M users, 50B
message/day, 55 employees
Netflix: USD8.8B revenue,
Dropbox: 300M users,
“Scale without Mass”
Top-3 US Automakers
• Revenues: 250B$
• Market cap: 36B$
• Employees: 1.2M
…that are largely based on a traditional
Top-3 US Tech
• Revenues: 247B$
• Market cap: 1T$
• Employees: 137K
Source: “Competition at the digital edge: “hyperscale” businesses,”
McKinsey Insights, accessed 4 March 2015
…affecting policies from trade to…
Share of Sellers Exporting on eBay vs. Offline
…to productivity, business dynamics
ICT services Non-ICT services
Note: Excluding the financial sector
Source: Andrews, D., Criscuolo C., and Gal P. N., “The Best versus the Rest: The Global Productivity Slowdown,
Divergence across Firms and the Role of Public Policy”, OECD Productivity Working Papers, 2016-05, OECD
The divergence in multi-factor productivity growth
• Need to rethink policies, in light of
digital vs. analogue economy;
• Is broad based and will affect all sectors /
policies: there is no “digital industry”
• Need for a proactive approach so as
to maximise the benefits and minimise the
Implications for Policy Making
The shift is distinguished by data
and its analysis…
…where the Internet becomes the new
Spear-Phishing Attacks by Size of Targeted Organization
Openness needs to be accompanied by
security, especially for SMEs
31 % 30 %
31 % 25 %
50 % 50 %
39 % 41 %
2011 2012 2013 2014 2015
(251-2 500 employees)
(2 500+ employees)
Source: OECD (2017), Key Issue for digital transformation in the G20, page. 94
• Rise above the Silos: take a whole-of-government
• Close the gap: foster SMEs competitiveness & help them
seize digital era via finance, skills & diffusion;
• Inspire innovation: promote high-tech start-up eco-
systems; protect and enforce IPR;
• Connect to the future: ensure access to 21st C networks;
• Keep it open: protect the free flow of information;
• Make it secure : foster cyber security for economic
• Put people at the center: share a human-centric vision
of Artificial Intelligence.
Filling the “Technology 4.0 / Policy 1.0” gap
Going Digital website:
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